Decision on Accepting Additional Business

Talladega Tire and Rubber Company has capacity to produce 179,000 tires. Talladega presently produces and sells 137,000 tires for the North American market at a price of $95 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 21,000 tires for $78.85 per tire. Talladegas accounting system indicates that the total cost per tire is as follows:

Direct materials	$36
Direct labor	13
Factory overhead (70% variable)	22
Selling and administrative expenses (30% variable)	19
Total	$90

Talladega pays a selling commission equal to 5% oof the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $5 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $105,000.

a. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
July 31
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling and admin. expenses
Shipping costs
Certification costs
Income (Loss)	$	$	$

Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. (accept the special order or reject the order) _________

b. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places. $____per unit